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Affordable Long Term Care

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Presently 60% of those over 65 will need long term care at some point.  Medicare only pays for short term nursing care. Medicaid, on the other hand, will pay for long term nursing. But you must use an approved service provider. In addition, Medicaid will only accept people with very low incomes and very few assets. In order to qualify for Medicaid, you have to deplete your income first.

If you want to preserve your wealth, you would want to look for another option. There are some financial and insurance products that can be adjusted to serve double duty. They are purchased for a primary reason, but may also used to provide some backup protection against the rising cost of nursing care.

With Nursing home Cost’s running $4,000 to $6,000 a month and outpacing inflation, it is a small wonder that most seniors cannot afford the Long term Care insurance premiums. There are low cost Alternatives available for seniors who just can’t afford the rising cost of these Premiums.

Until recently, consumers had few choices when it came to long term care insurance. Traditional policies, which provided a certain amount of selected coverage, were the norm. Policies could be designed to cover care expenses for a few months, or much longer, even providing benefits for the insured’s lifetime.

For example, consumers could purchase coverage that would provide $100 a day in benefits for a period of three years. When calculated, the $100 daily benefit multiplied by 365 days in a year for 3 years would create a $109,500 “pool of money” available for care. This pool of money would pay for care in a nursing home, assisted living facility, adult day care, or in the personal residence of the policyholder once certain criteria had been met.

When the pool of money was depleted, the traditional policy would provide no more benefits. However, if the policy was never used, the owner would lose the investment of his or her premium payments. Thus, some seniors opted not to purchase these policies, deciding instead to rely on their families or current savings in the event that care became necessary.

With the cost of health care rising rapidly, and a single day in a nursing home costing $175 or more in major cities, self insuring is a risky proposition. Relying on family is an alternative, but not necessarily a viable one. Unfortunately, most families do not have the time, resources or ability to provide around the clock care to a loved one.

The Introduction of Hybrid Policies

The insurance industry realized that consumer needs were not always being met with long term care policies. While traditional policies were satisfactory for some, many others wanted more guarantees in the event their policy was never used.

In response to customer and agent demand, insurance companies have designed what can be best described as hybrid or linked policies. These policies combine the benefits of an annuity or life insurance agreement with a traditional long term care contract. With hybrid policies, the consumer has the guarantee of long term care benefits or, if no care is needed, the promise of insurance benefits to themselves and their beneficiaries.

The Long Term Care Annuity

The newest addition to the hybrid marketplace is the long term care annuity. This product also functions exactly like a fixed annuity, but has a long term care multiplier built into the policy. There is no premium rider attached to this medically underwritten annuity policy. Instead, a portion of the internal return in the contract is used to pay for the long term care benefit.

Long term care coverage is calculated based on the amount of coverage selected when the policy is purchased. The insurance company offers a payout of 200% or 300% of the aggregate policy value over two or three years after the annuity account value is depleted. For example, a policyholder with a $100,000 annuity who had selected and aggregate benefit limit of 300% and a two year benefit factor would have an additional $200,000 available for long term care expenses after the initial $100,000 policy value was depleted.

The policy owner would spend down the $100,000 annuity value over a two year period and then receive the additional $200,000 over a four year period or longer. In this example the contract pays $50,000 a year for a minimum of six years, but care will last longer if less benefit is needed. Again, if long term care is never needed the annuity value would be paid out lump sum to any named beneficiary.

These scenarios are only basic examples of how hybrid policies work. That is to say, the coverage will be different from person to person depending on age, health, gender, premiums and benefits requested. In order to get an accurate proposal, an illustration would be required from the insurance company.

These innovative products can meet consumer demands and provide more guarantees by combining traditional long term care insurance with the advantages of annuity policies. Thus, consumers who utilize hybrid policies can avoid self-insuring against catastrophic long term care related expenses and have the peace of mind associated with a comprehensive plan.

In my experience, over half the people who shun long term care insurance do so because they feel they will never need it. It is difficult to visualize going to a nursing home. Statistically, half of these people will be right.

However, there are a number of scenarios where the person may need some kind of assistance but never see the front door of a nursing home. In fact, most people who need long term care can receive care without ever leaving their home.

When you stop and think about it, the decision not to buy long term care insurance is a decision to self insure. This can be costly and possibly devastating.

The average cost of a nursing home today is $80,000 per year and rising. At that rate, it doesn’t take but a few years to grind through a modest estate. If both the husband and wife need nursing home care, the time to dissipate an estate is cut in half.


These new products, long term care annuities, provide the option to receive long term care benefits only if they are needed. There is no separate long term care insurance policy, no premiums and generally little or no underwriting.


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Friday, July 24th, 2015 Wealth Preservation Comments Off

Managing Risk in Retirement

If you’re a senior citizen, one of your primary financial goals should be to make sure the money you’ve saved lasts as long as you do.  The problem is Retirees want it all; access to their pension cash, a retirement income, and a guarantee on income in later life. Yet, retired and near retired want to live without the stomach-churning volatility and risk that comes with investing in the stock market.

How to construct retirement income strategies that are personalized, dynamic, flexible and tailored to retirees’ individual needs is a concern and sometimes a problem.  Pre and Post Investors, who have accumulated savings in their employer-sponsored retirement plans and individual retirement accounts for decades, want to know how to transform those nest eggs into reliable retirement income streams.

There are many reasons to believe that any impact on your 401(k) or IRA investments is just around the corner. The most significant retirement pitfall is failure to plan ahead and adjust as the market changes.  As we get older and closer to retirement we get more afraid of losing our money.  Certainly, investing in today’s globalized markets comes with risks.  U.S. equities well into its sixth year of gains, the risk is that the market may be far less forgiving once the bull market falters.

Managing longevity risk is an integral part of any retirement system.  With Americans living longer than ever, medical experts recently updated their definition for the oldest of the old—they’re now people past the age of 90, up from 85. Longevity is changing the economic and social picture for everyone.  What’s important is how much income you can generate with that nest egg to keep you (and your spouse or partner) living comfortably for an indefinite period.

Social Security –– the only guaranteed source of income in retirement – and income generated from financial assets will determine their lifestyle once they’ve stop working full-time.  Many planners use the traditional 4-per-cent rule, a widely known guideline that dates back to an era of higher interest rates.The premise that a retiree could withdraw up to 4% of an initial portfolio per year, adjusted for inflation, and be relatively safe from running out of money — may no longer apply.

While the 4-per-cent rule of thumb may be a good place to start, it’s hardly a place to end for determining how much you will need to draw on during retirement.  Retirees must consider the trade-offs between interest rate and equity risk factors, with interest rates remaining near historic lows and equity markets continuing to generate strong volatility in returns.  With projected returns for stocks and bonds lower than in the past and continued low interest rates, it is possible that a 4-per-cent spending rate may be too high.

If someone has the misfortune of retiring just before a major market crash, the portfolio setback will significantly decrease sustainable retirement income. The 4-per-cent rule is based on not outliving money over a 30-year withdrawal period. However, a couple who are 65 years old have a 50-per-cent chance that at least one of them will live past 95. This means that most need to plan on their retirement funds lasting to at least age 100, just to have a reasonable chance of success.

The happiest retirees are those who receive lifetime income from their annuities.  Having a flexible financial plan that not only provides guaranteed lifetime income, but can also adapt to one’s needs as they change, is critical to help ensure a financially secure retirement. There comes a point when retirement planning has to become a priority.  Building a guaranteed income floor for use at a date in the future can be accomplished using deferred income annuities.

Income guarantees are the ultimate endgame. It’s time to stop exclusively chasing growth, and to start implementing some foundational income guarantees.  Social Security guarantees income for life. Your pension guarantees income for life. Annuities can contractually fill the needed gaps for your remaining income for life piece.

Even the staunchest annuity hater will admit that annuities are the only transfer of risk strategy that guarantees an income stream that you can never outlive.  Life annuities provide longevity insurance, which is another way of saying they guarantee the annuitant an income until death.

Are you afraid of running out of money? With life expectancy increasing and pensions decreasing, many retirees worry about outliving their retirement savings.  Some retirees are finding that a Qualified (or Qualifying) Longevity Annuity Contract (QLAC) is a practical solution.

In July of 2014, the U.S. Department of Treasury and the Internal Revenue Service issued final regulations allowing the use of a portion of certain tax-qualified retirement plans, like 401(k), 403(b) and IRA, to fund the deferred annuity. The “Q” in QLAC signifies the deferred income annuity is funded with qualified retirement money.

The ruling allows you to use 25 percent of your IRA or 401(k) or $125,000, whichever is less, to fund a QLAC. Additionally, QLACs must meet other requirements as well.

A QLAC is a type of deferred income annuity offered by insurance companies. You deposit a sum of money with the insurance company in exchange for a stream of income payments. The payments will begin at a future date – usually when you are at an advanced age, such as 80 or 85 – and will last for the rest of your life, regardless of how long you live.

The size of the payments will be determined by several factors, such as the amount of your lump-sum payment, your life expectancy, your current age and the age you designate to start receiving lifetime payments.

Deferred income annuities have been around for years, but what is new is how they can be funded.  QLACs are intended to provide a fixed stream of income and therefore cannot be invested in indexed or variable annuity products. QLACs can also provide a death benefit or return of premium option.

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Wednesday, July 15th, 2015 Wealth Management Comments Off

Guarantee of Retirement Income

The financial realities of our world are changing. More and more people need to rely on their own investments for income during retirement. The assets from which you expect to create a vital stream of income during your retirement face risk from economic turmoil, interest rate uncertainty and market volatility. Markets don’t always go up, and if the first year of our retirement coincides with a market crash, the future doesn’t look so bright.

Stocks plunged nearly 2 percent or more on Monday for their worst day of the year, then on Tuesday The Dow Jones industrial average traded about 90 points higher.  Talk about “Volatility” if you are retired this is like being on a roller coaster ride.  What will ignite the fuse that sets off the next big market crash?

Fortunately, positioning your portfolio to weather the next big downturn doesn’t require that you be able to foresee when the setback will occur or what will instigate it.  One lesson of the 2008 financial crisis has been the importance of having some investment diversification in your retirement portfolio.

If you’re retired, you likely still want to have at least some of your nest egg in stocks to assure that your savings can generate income that will stand up to inflation throughout retirement.  However, the lesson learned is, the more places one invests their retirement assets, the less chance that the overall retirement portfolio will take a big hit when any single asset class slumps.

Many future retirees and present retirees have not taken in consideration the impact that “Uncle Sam” will have on the income from your 401(k), 403(b) or IRA accounts.  Uncle Sam owns up to 30-, 40-, or even nearly 50-percent of your account value.  If you have not started taking distributions yet you probably don’t realize the impact this will have on your actual retirement income.

Whether you like it or not, if you have a traditional IRA or 401(k), when you turn age 70 ½ you will have to start taking money out and pay taxes on that amount annually. Think of it as the IRS gently tapping you on the shoulder.  Required Minimum Distributions, (RMD) is the amount of money Uncle Sam requires you to withdraw each year from your IRA and 401k accounts once you reach age 70-1/2. The IRS makes you take this money out of your IRA and 401k accounts so it can tax that money.

In July, 2014, the Treasury Department relaxed the RMD rules a bit, reflecting the government’s desire to encourage you to prepare financially for your retirement.  The new rules allow you to buy a longevity annuity with your 401(k) or IRA money and not worry about having to include the value of that IRA annuity in your RMD calculations from age 70-1/2 up to age 85.  By investing in the QLAC you essentially postpone paying income tax on some of your IRA money.

Annuities should be in place for lifetime income, lifestyle, and a worry free retirement that doesn’t involve the stock market.  Annuities contractually solve for only four things: Principal protection, Income for life, Legacy, and Long-term care. The acronym you can use to remember this is P.I.L.L.

Most retirees prefer to continue to receive a secure income for the rest of their lives.  Start taking some of the risk off the table and transferring that risk to an insurance company to provide the needed income right now or at a specific time down the road. It really comes down to lifetime income now or lifetime income later.

When you add up your pension (if you are so fortunate), Social Security payments, and other investment income, there might be a gap in the amount of guaranteed income required that needs to be filled. Annuities are the only strategy that can provide a lifetime income stream that you and your wife can never outlive.

A QLAC is a new breed of longevity annuity (also known as deferred income annuity). You set up a QLAC by transferring money from any of your existing IRA or 401k accounts to an insurance company annuity. Your QLAC is designed to pay you a steady monthly income later in life.  Income options can be single or joint life, either life income or life income with cash refund.

This is an annuity in which you pay a lump sum premium to an insurance company and then at a future date which you specify today, you begin receiving a guaranteed monthly payout amount that continues for as long as you (or your spouse) are alive.

The beauty of the longevity annuity is that the insurance company tells you today exactly how much income you will begin receiving in the future. There is no stock market or interest rate risk. The future income amount that’s quoted is guaranteed!

With a longevity annuity you get income security that starts in your old age and at an attractive price. Financial planners estimate that if you own a longevity annuity you can increase the amount you withdraw from your savings in the early years of retirement by as much as 30% because of the reassurance in knowing your income in later retirement is guaranteed by the annuity.

QLACs can also be used in more complicated annuity and financial planning strategies that are based on a concept called laddering in which you space out the maturity dates or dates on which income becomes available. The goal of these strategies is to diversify your portfolio and minimize interest rate risk.

With staggered maturity dates that may stretch across years or decades, you can also plan for times when you anticipate needing more money such as for increased care or even to fund a purchase such as a retirement home.

Another advantage is knowing you have the income security from your QLAC which doesn’t have exposure to stock market or interest rate risks might make you feel more comfortable with being more aggressive with your other investments.

Annuities can be useful in financing retirement.  Your retirement income plan is probably the most important investment decision you’ll make in your life.  Thanks to advances in healthcare, retirees are living longer than ever – sometimes stretching their retirement out 20 years or more.

Living longer, healthier lives is certainly an exciting proposition, but ensuring that your retirement savings will last 20 to 30 years, and possibly longer, is the challenge. Annuities are one of the only guarantees that you can get in life.

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Wednesday, July 1st, 2015 Wealth Management Comments Off

Managing Retirement Risks

Without the traditional safety net of a pension that will send you a check until you die, many workers nowadays are having to play the ultimate betting game: We’re living longer. And even if we’ve saved for our retirement, will we have enough?  There’s definitely a delicate balance between spending and saving in retirement, especially as more and more people seem to be reaching their 90s.

How do you manage your money so you can enjoy it as much as possible while you’re alive but not spend it all before the grim reaper comes? They cannot afford to take risks with their money, even if the investments pay higher income.  The problem is that anything that is risk-free is going to be paying around the cash rate and that is the reality.  Low interest rates and inflation are the dual enemies of retirees.

The first step is to add up everything that you have in terms of investments to make sure it is enough to cover your monthly bills. You need to estimate how much money you will have coming in from Social Security, pensions, 4 percent annual withdrawals from your retirement savings accounts and any other retirement income you will have.

Successful retirement planning involves more than simply covering your monthly bills. Consider how a variety of scenarios, such as a significant decline in your investments, a nursing home stay or living until age 100, will impact your cash flow, and what you would do to cope with each situation.  People should look at their income needs during retirement, subtract from that certain sources of income that are coming in the door–pension, Social Security payments, maybe some sort of fixed annuity payments. The amount that is left over, that’s what the portfolio will need to replace.

The Federal Reserve is moving toward its first interest-rate increase since 2006, and the end of record monetary stimulus will rattle the herds of investors who poured cash into risky debt to try and get some yield.  Tremendous amounts of wealth have been accumulated during the past five years.  Much of this wealth is concentrated in the top 1 percent; and most of that wealth is concentrated in the top 1 percent of the 1 percent.  The average investor lags the market because they don’t have an investment process and they buy and sell things on impulse.

Investors might as well get used to the market volatility. Whether you’re looking at stocks, bonds or commodities, asset prices have been swinging a lot more wildly this year.  We’re in the sixth year of a bull market, valuations are at historic highs, and we have uncertainty about the economy and interest rates.  A 10 percent correction in the Dow means an 1,800-point drop.  If they’re uncomfortable with that, now is the time to scale back risk.

Future results are never certain, so individuals that have a higher equity allocation, especially once they are already in retirement, may often find themselves even worse off than if they had kept a more conservative allocation.  While increased equity allocations could help retirees spend more in retirement if markets are good, some investors ignore the associated increase in volatility, therefore introducing sustainability risk to their portfolios. If markets aren’t favorable, increased equity exposure could be catastrophic for retirees’ retirement plans.

Baby boomers are more health-aware than previous generations and more dependent on social insurance due to losses of investments and sometimes entire pensions after the Great Recession.  What should people do if they are looking to build an income portfolio for themselves.  There are really three things to look out for.

  • First, make sure that your income is coming from a diversified source, don’t have all your income eggs in one basket.
  • Secondly, however you are investing your money whether it’s through a platform or through a product, make sure that it is able to actually pay you the income.
  • Thirdly, building a portfolio with a stable income, in a such a low interest rate world as we have today, so many income products that look like they have a high yield have a really big catch and sometimes that could be higher risk, poor liquidity or even bad tax treatment so look out for that.

The bigger concern for retirees is that as markets get volatile, they start making decisions based on their fears and emotions, not on their financial plans. By the way, we see a market crash about every 4 to 6 years. If history repeats itself the next market crash could be right around the corner, because we’re at the end of the market’s typical 4- to 6-year cycle.  It’s really not a question of if the market will crash, it’s just a question of when.

The bottom line is that you want to be protected BEFORE it crashes. Obviously, this also applies to any of your existing IRAs and any other money you have in stocks and mutual funds.

Okay, so where should you put your money? If you want to protect your hard-earned money from loss, you should consider fixed Indexed annuities. Fixed indexed annuities let you take advantage of market gains with none of the downside risk.

With a fixed indexed annuity, your principle is guaranteed by an insurance company against market losses. There is also an annual reset. Every year the interest you earn becomes part of the principle, so the interest that you earn is also guaranteed to be protected from market losses too.

The biggest benefits to fixed index annuities is they give you a reasonable rate of return and you don’t lose money. If you want to be sure that your money will be there waiting for you when you retire, rollover your old 401(k) or 403(b) into a fixed indexed annuity.

An annuity is sort of like a mix between an insurance plan and an investment account.  Simply put: an annuity is a financial product that guarantees income in retirement.  Annuities allow contribution of a set monthly amount, yield guaranteed payments throughout retirement regardless of stock market performance, and are guaranteed not to lose money.

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Thursday, June 25th, 2015 Wealth Management Comments Off

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